Europe's big hedge funds outperform peers

19.01.2014

EUROPE'S LARGEST hedge-fund managers performed better than their global peers last year with net returns of as much as 41% on at least one of their flagship funds. The global hedge-fund industry gave investors a return of 10.4% last year, according to estimates published last week by data provider Hedge Fund Research for its noninvestible index, or 11.6%, according to investment consultant Hennessee Group.

At least five other data providers are yet to disclose their results but are expected to cluster at about 10%, according to initial estimates based on returns to November and the December figures for investible indexes. From investors, Financial News obtained 2007 fund returns for 20 of Europe's 25 largest firms, of which assets under management ranged from $4 billion to $21 billion at the end of the year. Of these, 10 were above the industry average, eight were above the return from U.S. Treasury bills and the remaining two, which registered losses, kept their losses at less than 1%. Lee Hennessee, managing principal of Hennessee Group, said the hedge-fund industry should be compared with the Standard & Poor's 500-stock index, which it beat by eight percentage points.

"It was the best relative performance since 2002," she said. Meanwhile, Richard Watkins, chief executive of U.K. investment consultant and placement agent Liability Solutions, said the returns should be compared with those on cash: It "was not a bad year for the industry, and volatility was low." The most successful large European funds use a long/short equity strategy, which is the most popular among more than 20 hedge-fund strategies.

Sloane Robinson's global international fund, which excludes U.S. investments, headed the list of large European fund managers with a return of 41%, according to a person close to the matter. Sloane Robinson, which was established in 1993 and is one of Europe's oldest hedge-fund managers and the sixth largest with $15 billion of assets under management, made above-average returns for three of its other hedge funds last year. Phoenicia, its global fund, was up 36%, its emerging-market fund rose 34% and its Asia fund gained 30%. Its Europe fund grew by 7% and its small Japan fund, trading in a market in which managers struggled last year, was up 2%. BlueCrest made a 25% return for its managed-futures fund, BlueTrend, which, unlike BlueCrest's other funds, is computer-driven. BlueTrend has grown to more than $3 billion since its launch in 2004 and last year came out on top of the large European managed futures firms, beating Man AHL, Winton Capital and Aspect Capital. BlueCrest Capital, its original arbitrage fund, launched in 2000, was up 10% for the year to Dec. 21, according to an investor. The firm's long-term average is 12% a year with volatility of less than 6%. GLG Partners, which floated in New York last year, made double-digit returns for each of its three largest funds. Its emerging-market fund made 50% after fees. With $3.1 billion of assets at the end of September, the emerging-market fund is set to overtake European long/short as the firm's largest fund.

The European long/short equity fund had $3.2 billion in September. GLG's market-neutral fund, once its largest, had $2.5 billion in September and made 14% in 2007. Some of Europe's smaller funds generated exceptional returns. A fund launched by U.K. firm Peloton Partners in 2006 to trade in asset-backed securities recorded a return of 87% last year. This was mostly driven by a short exposure to U.S. subprime mortgages, which was one of last year's three winning investment themes, according to Richard Blake, a senior portfolio manager of Comas, Commerzbank's CBK.XE +2.92% fund-of-hedge-funds business. He said the others were a hedge against equity volatility and a short exposure to credit. The stream of high monthly returns some hedge funds have made from shorting subprime may be coming to an end, according to fund-of-hedge-funds managers. Peloton's ABS fund lost 0.35% in December.

The firm's older, multistrategy fund, which lost 0.59% in December, was up 27% in 2007. Spain's Vega Asset Management Partners registered a net gain of 15% for one of its four flagship funds, Vega Select Opportunities, in 2007. This was a return to form for the fund, which lost 16% in 2006 and 9% in 2005 after four years of generating about 27% a year. The firm briefly became the world's largest hedge-fund manager in 2005, with $11 billion under management in its flagship funds, before investment losses scared away investors and the flagship assets fell below $1 billion, although it has assets in other funds. Vega's two other flagship funds, Vega Diversified and Vega Global, were up less than 5%, and Vega Relative Value was down about 6%.